While the grand-sweeping Alternative Investment Fund Managers Directive will introduce a host of new reporting rules for fund managers covered by the law, it’s also having a knock-on effect on GPs’ requirements under the European Market Infrastructure Regulation (EMIR).
Starting on August 11, AIFMD-authorized fund managers will need to report any of their foreign exchange or interest rate hedge contracts within two days to a trade repository (entities that centrally collect the reports of derivative transactions, such as DTCC Derivatives Repository or UnaVista in the UK). At minimum, GPs must provide the names of the trade counterparty and other details like what type of trade, its notional value, price and settlement date.
GPs that exceed certain trading thresholds, yet to be determined by the European Securities and Markets Authority, must also report the mark-to-market value of any of their over-the-counter or exchange-traded derivative to a trade repository. Such information will need to be reported the day after each trade and updated when the value of the trade changes, even if on a daily basis.
EMIR is relevant for all European fund managers because all GPs authorized or registered under the directive, which takes effect July 22, will be classified as financial counterparties under EMIR and thus subject to the full array of EMIR’s obligations.
“It is quite onerous when you have a lot of counterparties and not too many trades. It’s a tough thing to manage,” said one UK-based private equity CFO in reaction to the heightened reporting obligations.
The regulation also requires GPs to implement risk management standards, including operational processes and margining for all bilateral over-the-counter derivatives.